Do Churches Need an IRS Letter of Determination?

Churches are unique entities under U.S. law, and understanding whether they need a Letter of Determination from the IRS can be crucial. This article clarifies the requirements and procedures for churches concerning their tax-exempt status under the IRS code and the Constitution.

Automatic Exemption for Churches

Under IRC 508(c)(1)(a), churches that have obtained an Employer Identification Number (EIN) and are recognized as churches are automatically granted tax-exempt status without the need to apply for a Letter of Determination. This exemption stems directly from the Constitution and specific IRS codes, ensuring that churches are recognized as federally tax-exempt entities.

General Rules for Nonprofit Tax Exemption

Typically, nonprofit organizations must file IRS Form 1023 to apply for tax-exempt status under § 501(c)(3). This process includes a thorough review by the IRS, after which an organization may receive a Letter of Determination if their application is approved. However, churches enjoy a distinct status that exempts them from this filing requirement if they meet the definition of a "church" and align with § 501(c)(3) criteria.

What Qualifies as a Church?

The IRS has specific criteria to define a church, which include:

  1. Distinct legal existence
  2. Recognized creed and worship form
  3. Defined ecclesiastical government
  4. Formal doctrine and discipline
  5. Unique religious history
  6. Organized ministry
  7. Ordained ministers with formal education
  8. Designated worship locations
  9. Regular congregations and services
  10. Religious education programs

These characteristics help the IRS determine whether an entity qualifies as a church for tax purposes.

Criteria for Maintaining Tax-Exempt Status

For a church to maintain its automatic tax-exempt status, it must:

  1. Be formally organized (e.g., as a corporation or trust)
  2. Operate exclusively for exempt purposes (religious, charitable, etc.)
  3. Ensure no earnings benefit private individuals
  4. Limit political and legislative engagement
  5. Adhere to public policy standards, including prohibitions on racial discrimination and advocating government overthrow, as established by key court decisions like the 1983 Bob Jones University case.

Why Obtain a Letter of Determination?

While not required, some churches may choose to obtain a Letter of Determination to aid in fundraising, grant applications, or supporting affiliated ministries. This letter can provide additional credibility and assurance to donors and stakeholders about the church's tax-exempt status.

Conclusion: Assessing Your Church’s Needs

Churches automatically qualify for a tax-exempt status but can opt to secure a Letter of Determination for further validation. This decision can depend on the specific needs and activities of the church. For more detailed guidance, churches are encouraged to consult with tax experts or legal advisors to ensure compliance and make informed decisions about their tax status and related requirements.

For more detailed guidance and additional resources, please download our comprehensive guide here.